Third sector hails move to retain business rates relief for genuine charities while removing it for controversial bodies such as private schools
Private schools and council run charities are to be stripped of charitable tax breaks.
A year-long probe into Scottish business rates by former RBS chairman Ken Barclay made 30 recommendations and found no justification for private schools or so called arms-length external organisations (Aleos) of councils to continue receiving preferential business rates. The move is estimated to bring in £50 million in additional tax income.
The Barclay report accused Aleos of “tax avoidance” by claiming charitable status.
Aleos, such as Glasgow Life and Edinburgh Leisure, are some of the biggest recipients of charity rates relief in Scotland.
Most Aleos, which include sports services, theatres, libraries, museums and galleries, are funded by and directed by the council. Yet, councils self-award 15-20% of all charitable rates relief to them, the report found.
In terms of private schools, the report said that unfair competitive advantage was being gained compared with state schools. It recommended they should lose the perk by April 2020.
A move that will cost councils and private schools dear
Aleos include leisure and sports centres and arts venues including theatres, libraries, museums and galleries.
They are created by councils to avoid paying huge sums in business rates and other tax costs.
They still retain their charity status, but Barclay says they should not remain exempt as they are in competition with private firms that have to pay rates.
The cost is estimated at £45m.
Private – or independent – schools are classed as charities and as such don't pay business rates while council-run schools do.
The recommended change would cost the private schools sector about £5m per year.
The Barclay report, however, has stated that legitimate charities will continue to receive up to 100% rates relief on their premises and headquarters.
The outcome is a also huge relief for organisations running charity retail outlets.
Last year it was feared that as part of the review charities could lose up to 20% discretionary rates relief awarded by local authorities.
Martin Sime, chief executive of the Scottish council for Voluntary Organisations hailed the move to clamp down on tax avoidance tactics.
“We welcome the group’s recommendations around removing charitable rate relief from Aleos and independent schools, which it has recognised as a form of tax avoidance,” he said.
“SCVO has long believed that arms-length organisations of councils and private schools are not genuine third sector organisations."
Speaking on behalf of the review group, Barclay said: “We have highlighted unfair advantages gained by anomalies within the system, and of those who deliberately avoid payment of tax. Neither is fair.
“These measures are essential for the rates system to remain credible for ratepayers and to ensure revenues are not undermined by avoidance tactics.
“We are clear, this is not about penalising certain sectors, it is about compliance, fairness and transparency.”
Elsewhere the review recommends universities – which are also classed as charities – should start paying business rates where they compete with private firms.
That would affect the letting of student accommodation during holidays, in competition with hotels.
Robin Osterley, chief executive of the Charity Retail Association, told TFN: “We are of course pleased that the Barclay Review has acknowledged the huge importance of the charity retail sector by recommending no change in its rate relief regime.
"The sector is of massive benefit to Scottish society and this report reflects that fact.”
The Scottish Government said it would repond “swiftly” to its recommendations.
Finance secretary Derek Mackay said: “This report offers recommendations for reform of the system to make it work better for ratepayers across Scotland while ensuring that the contribution they make to important local services is maintained.
“I know the review group have worked incredibly hard, spending more than a year engaging closely with the ratepayers across Scotland before compiling this report.
“Having now received the Barclay Review, the Scottish Government will respond swiftly to its recommendations.”
The Scottish Council of Independent Schools has been contacted for comment.
